Capital gains vs Taxable income

[BtcOnly]

I’d like to know how my crypto gains will be taxed if I’m already a high income earner. For the sake of ease, let’s say I’m married filing jointly and earn from all income sources $364,200, the cap of the 24% tax bracket. However, I sell crypto and make long term capital gains of $90,000. I’ll pay 15% on those gains, but will this 90k also count toward my total income, pushing my income to $454,200, making all of the 90k taxed at the next tax bracket up at 35%? A double tax? Also, in this scenario, how do I calculate the net investment income tax (NIIT) of 3.8%, which is applied to us after 250k. Thanks for sorting this out! 

[Andrew_W]

Hi @BtcOnly,

Assuming the crypto has been held for investment, and for a period longer than one year, it will be taxed at long term capital gains rates. This tax is calculated separately from you ordinary income, with standard tax brackets.

Following your example, a married filing joint couple will have their ordinary income of $364,200 taxed through the 24% tax bracket. Separately, the capital gains of 90k from selling crypto held long term will be taxed at 15%. Net Investment Income Tax will also apply. The tax from each will then be summed together to reach the total tax liability for the year.

The Net Investment Income Tax (NIIT) is generally 3.8% of the amount of Modified Adjusted Gross Income (MAGI) that exceeds the applicable thresholds or the net investment income—whichever is the smaller figure. The thresholds are: 

• Filing a joint return or qualifying surviving spouse status: $250,000
• Married filing separately: $125,000
• Single and head-of-household: $200,000

The NIIT is calculated on form 8960. Here is some additional information regarding NIIT and form 8960: https://turbotax.intuit.com/tax-tips/investments-and-taxes/what-is-form-8960-net-investment-income-t... 

[rjs]

Note that the tax is calculated on your taxable income, not total income or AGI. Taxable income is total income minus adjustments (if any) and either the standard deduction or itemized deductions. The brackets for both ordinary income and long term capital gain are based on taxable income.